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Sun 27 Feb 2011 12:00 AM

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All change in the capital

Investment in the hospitality sector is resuming in Muscat, indicating confidence in the burgeoning business sector and prospects for developing the leisure market, says Kathi Everden

All change in the capital
Muscat Corniche, Muttrah

It is perhaps indicative of the market in Oman that the websites of several developers are
‘under construction’, with the fall-out from the global recession rippling down
the coast and up in to the mountains of the Indian Ocean
sultanate.

With much of the investment in the hospitality sector coming
from elsewhere in the Arabian Gulf - subject to their own financial crises - showcase
projects have been delayed, revamped and at times let slip altogether, but the prognosis
for recovery is good.

“In markets like Muscat, opportunities
arise mainly due to support from the government which has taken a pro-active approach
to building its tourism infrastructure,” said Neil George, VP, acquisitions and
development for the Middle East and Africa. “I
should expect that the opportunity for investors would presently lie in the acquisition
of distressed assets at attractive valuations and in specifically targeted projects
that are aimed at under-served market segments.”

According to Elie Younes, regional VP business development for Rezidor, the signs
are for slow and steady development on the feasible projects put on hold during
the past 18 months.

“Generally this is a good
sign, it shows that the developers have now had enough time to really analyse the
markets and how to develop their properties in a way that not only achieves a competitive
advantage, but also adds value to the market,” he says.

A cautionary note was sounded by Chiheb Ben Mahmoud, SVP and
head of hotel advisory at JLL: “There is a limit to what the government can do to
incentivise investment in new hotel developments - infrastructure needs in Oman will always
be significant given the nature of the landscape”.

However, through its Omran arm - mandated to deliver major projects
and manage tourism assets and investments - the government is making strides and
has taken several projects under its wing, as well as working with partners such
as Orascom to nurture the development of a tourism infrastructure which is poised
to spread.

Prospective projects

In the interim, hotel projects ranging from the Premier Inn to
the second GHM resort, the Malkai Barka, have been put on hold, and groups such
as Accor have seen prospective expansion strategies shot to pieces through lack
of funding.

“Oman
represents a priority market for us,” said Christophe Landais, MD of Accor Middle
East.

“We have had an aggressive development strategy for the country
in the last four years with five projects, three in Muscat and two in Sohar for two Ibis hotels, and
the others in the midscale- and luxury- hotel segments.”

With all five hotels cancelled, the group has had to revisit
its plans and is now actively seeking sites for a Sofitel hotel in Muscat, more midscale developments, as well as a Pullman hotel to address the needs of the meetings and incentive
market, and further Ibis openings.

It’s a move echoed by other groups, many of whom are actively
seeking opportunities in the Muscat hotel market
- although fortunately for current Muscat
hoteliers, events have a tendency to move slowly in the Omani capital, with room
inventory rising at a slow but steady pace enabling markets to keep supply and demand
in intermittent harmony.

The heady days of 2008 are long gone, when occupancy in Q1 stood
at 84.2% and revPAR was US $232, up 35%. By contrast, Q1 in 2010 recorded occupancies
of 64.2% with revPAR at $161, while by June, occupancy YTD was 57.8% and the latest
figures for November 2010 showed the levels stood at 53.7%, slightly up on 2009,
according to STR Global statistics.

An average revPAR of $125 is welcomed by some in the hotel industry,
particularly newcomers to the city such as City Seasons, scheduled for an imminent
opening of its 269-room hotel at the Al Khuwair City Centre.

“The pressure on rates is good for Muscat as it opens up more opportunities for tourism,”
said EAM, Tim Van Veen.

“Muscat
was never a cheap destination and this situation will help us to build business
since a healthy rate strategy is essential.”

The hotel, aiming at GCC and international corporate markets,
is a forerunner of potential for the new wave of midscale branded hotels aiming
to fill the gap between Muscat’s
stalwart premier icons and the mass of unbranded rooms that have traditionally served
the mid market and economy demands.

According to Guy Wilkinson, partner at hotel and real estate
consulting firm Viability, while there has been an influx of independent and mid-market
hotels swelling the inventory, boosted by a large boom in serviced apartments, there
is room for more.

“As a capital city, Muscat has need for transient accommodation
to serve both business and leisure guests of all socio-economic levels, and the
same is true for Salalah and Sohar - and we can expect to see the existing supply
complemented by equivalent international and regional economy brands, either select
or limited service hotels or affordable serviced residences.”

Emphasising this viewpoint, Starwood for instance is exploring
potential for Aloft in the three-star space and a possible Four Points by Sheraton
at the airport to complement the downtown Sheraton, confirmed Neil George.

Meanwhile, Kuwait’s Action Hotels is expanding its portfolio
- having started with the Ibis Muscat two years’ ago, it has now teamed up with
IHG on the 176-room Holiday Inn Seeb Muscat set to open later this year.

“The hotel represents another step in the company’s foray in
to the burgeoning midscale hotel sector, sitting perfectly in the lodging gap for
business and leisure travellers who want a comfortable room and personable proactive
service at true value rates,” said chairman, HE Sheikh Mubarak Abdullah Al Mubarak
Al Sabah.

Reinforcing the viability of this strategy, Accor’s Landais said
the Ibis Muscat was currently the only internationally branded economy hotel in
Oman:
“It has been performing extremely well, demonstrating the need for such affordable
high-quality accommodation.”

The wow factor

At the other end of the spectrum, the big news in the city is
the plans by Starwood for a wholesale makeover of the site currently occupied by
the InterContinental Muscat.

As part of a four-year redevelopment plan, a 250-room W Hotel
will be built in the grounds of the current site, while the existing hotel continues
to operate - after the launch, expected in 2013, this will be demolished to make
way for a 350-room Westin and a 100-key extended-stay Element property.

“The first hotel to open will be the W which will showcase leading
edge design and atmosphere and is set to be the hippest and coolest hotel in the
country,” said George, who emphasised he expected it to be a game changer for the
market, helping establish Muscat as a destination for a whole new segment.

“With the Westin, we will offer a world-class business hotel
with an emphasis on wellbeing during travel and this will set a new benchmark in
terms of room design and programmes and amenities to ease the stress caused by travel
- meanwhile, the Element is our ‘green lab’ designed around environmentally-sound
and sustainable principles to provide a superior extended-stay hotel experience.”

The schedule has been designed after consultation with Omran,
which wished to avert disruption to the market by taking out rooms and then flooding
it with 700 new keys at one time.

Meanwhile, Starwood has another star in the making with the reopening
of the Sheraton Oman in the capital, which will debut this summer with 230 new-look
rooms plus a ballroom with capacity for 700 as well as 12 meeting rooms, six restaurants,
gym and indoor and outdoor pools.

“With its strategic location in the CBD of Muscat, the hotel
aims to secure a large share of the thriving MICE business,” said George.

And, with the regional and international meetings and events
sector also identified as one with potential by the government, ground has at last
been broken for the Oman Convention & Exhibition Centre with its 3000-seat auditorium,
25,000m² of exhibition space, office business park and four hotels delivering 1000
rooms at a location four kilometres from the airport - set to launch by the end
of 2013.

The venue will complement existing MICE facilities at properties
such as the Shangri-La Barr Al Jissah and the Al Bustan InterContinental, the latter
subject to intense speculation about a change of operator. (Hotelier reported it
will be reflagged as a Ritz-Carlton, but neither company has confirmed this).

Meanwhile, this boost to MICE credentials is expected to assist
in the perennial problem of seasonality in the Muscat market, where occupancies are known to
plummet to the 20s and 30s during the dog days of summer.

While some hoteliers are pragmatic about the situation - City
Seasons’ Van Veen said local corporate deals, variable rates and cost containment
were the solution - others are more bullish.

According to Kent Cooper, Fairmont VP of regional hotel sales,
groups and incentives are key to slow periods: “We can offer exceptional value with
a strategic focus on corporate travel - as a result, Fairmont The Wave will have
a wide range of meeting options including a ballroom and break-out space for just
this reason.

“In addition, golf will add a unique selling point to the resort,”
he said.

For Starwood, George said the W to an extent would sell itself,
even during summer. “Many people will travel to and stay at a W simply for the unique
experience it offers - and in this sense, this type of segment is somewhat independent
of the weather,” he explained.

For others, more marketing and extra government assistance would
be welcomed. “Seasonality continues to be an issue which needs, in my view,
to be addressed by the public sector in order to help the private sector attract
more tourists during the low seasons,” said Rezidor’s Younes.

But, with extensive plans for tourist developments outside of
Muscat, and expansion
at the airport to take capacity to 12 million by 2014, many hotels expect to capitalise
on their gateway status as stopovers become a viable market.

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